Global Perspectives

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

The first quarter economic headline is quite negative, and to be sure, concerning underlying data points are present. But it's not uniformly negative, with other data points suggesting higher growth ahead.

It's the Rorschach economy. After much weaker-than-expected U.S. first-quarter gross domestic product (GDP) data, it seems economists' views range from "the economy is stronger than it appears" to the recent spate of anemic "hard data" have painted the real picture. And it's not just disagreement among professional economists citing the discouraging hard versus buoyant "soft data." It's also rising equity prices versus falling bond yields, and a generally strong earnings season versus a poor GDP print, the weakest, in fact, in three years.

Most agree that the first read on the U.S. economy in 2017 may be following a familiar pattern in recent times of a slow expansion early in the year that not only gets upwardly revised but picks up steam in subsequent quarters. Still, the January-through-March 0.7% annual rate of growth over the preceding three months was well short of the 1.2% expected, and its 1.9% expansion from the first three months of 2016 suggests that the anemic 2% pace of annual growth since the Great Recession officially ended in 2009 will continue.

It's hard to say because there's plenty in the GDP report that's both positive and negative. Despite all the strong consumer and business confidence surveys—the soft data—consumer spending was the lowest in eight years. Inventories, meanwhile, also declined, a bearish signal. Broad personal consumption rose 2.8% in the first quarter from the year before, down from 3.1% in the fourth quarter of 2016. But purchases of durable goods, at 7.4%, was hardly weak, and residential investment picked up to 2.4%, more than double the previous quarter's pace. And if inventories declined, non-residential fixed investment rose strongly, to 3.1%, after four straight quarters of negative reads.

"People say they feel great, but spending just isn't occurring," says Thornburg's Lon Erickson. Retail spending in aggregate declined in February and March, while growth in lending has been ebbing. "It's unclear what the disconnect is between what people are saying and what they're doing," he adds.

Lon Erickson, CFA

Portfolio Manager and Managing Director

Lon Erickson is portfolio manager for Thornburg Investment Management. He joined Thornburg in 2008 and was made portfolio manager and managing director in 2010.

Lon earned a BA in business administration with a minor in economics from Illinois Wesleyan University and an MBA from the University of Chicago Booth School of Business. He is a CFA charterholder. Prior to joining Thornburg Investment Management, Lon spent almost 11 years as an analyst for State Farm Insurance in the equity and corporate bond departments.

UCITS

The Federal Reserve's favored inflation metric, the personal consumption expenditures index, advanced 2.4% in January through March, the most in six years. But excluding energy and food, it rose 2%, hitting the Fed's target. The employment cost index, a leading inflation indicator, came in at 0.8%, higher than the expected 0.6%. The three-month moving average of medium wage growth was an eyebrow-raising 3.4% in March.
"That's the fear," Erickson says. How will wage pressures feed through to the broader inflation dynamic? Fed fund futures suggest there's little doubt the Fed will raise its key rate two more times this year, though the second of those two is only about half priced in, he cautions. The hikes are pushing up the front end of the yield curve. At the same time, the back end of the yield curve has been drifting lower, suggesting market fears that the Fed will tighten policy to head off inflation, potentially stifling economic growth in the process. Its balance sheet "normalization"—slowly letting the assets it has purchased run off—will also introduce some volatility into the already complicated mix.

But small rate increases spread out over a longer timeframe shouldn't hurt the economy and will help hard-pressed savers and income investors, Erickson points out. Treasuries are also still supported by international investors, many of whom can get far better yields in the U.S. in contrast to the rock-bottom sovereign yields abroad.

The wild card in the U.S. is tax reform and what it would do to the U.S. fiscal deficit. While details are lacking in President Donald Trump's proposal, it does appear that the deficit would deepen significantly, and pressure U.S. Treasury yields. Furthermore, if Europe's economy keeps improving and rates there start to rise as European Central Bank asset purchases taper off, that could put additional pressure on U.S. yields, as more European fixed income investors stay home.

For now, the mostly good earnings season, with the S&P 500 Index on track for its best earnings growth rate in six years, and an apparent slowing in deteriorating credit metrics, suggest a decent operating environment in the U.S. Yet on a security-level basis, both U.S. stocks and bonds remain richly priced. Companies will have to keep growing their earnings into those valuations, and a pick-up in consumer spending to match the sentiment surveys would certainly help justify those multiples, not to mention boost the broader economy.

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Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Danan Kirby is a portfolio specialist for Thornburg Investment Management. He works with Thornburg’s investment team and serves as a liaison for the team and key investment decision makers, communicating process and results of the firm’s investment strategies. Danan joined Thornburg in 2016.

Prior to Thornburg, Danan served as portfolio manager for the Strategic Growth Bancorp family of banks, managing various strategies for institutions and individual investors. Before that, he was a financial institution specialist with the FDIC. He is also a veteran of the U.S. Army. Danan graduated summa cum laude from the University of New Mexico’s Anderson School of Management with a BBA, concentrating in finance.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Josh Rubin is a client portfolio manager for Thornburg Investment Management. He works with Thornburg’s investment team, serving as a liaison for the team and key investment decision makers and communicating process and results of the firm’s investment strategies. He joined Thornburg in 2017.

Before joining Thornburg, Josh worked on the global equity investment team at Driehaus Capital Management in Chicago where he held several roles, including portfolio manager of the global equity strategy, portfolio manager of the U.S. large-cap and U.S. mid-cap equity strategies, and senior analyst covering emerging markets. Josh also spent over seven years at Marsico Capital Management in Denver, where he was a co-portfolio manager of the emerging markets fund and a senior analyst covering global companies across sectors. He began his career in finance as an investment banker in the fixed income division at George K. Baum & Company in Denver.

Josh holds a BSFS in international politics from the Walsh School of Foreign Service at Georgetown University.

Top Contributors

Danan Kirby is a portfolio specialist for Thornburg Investment Management. He works with Thornburg’s investment team and serves as a liaison for the team and key investment decision makers, communicating process and results of the firm’s investment strategies. Danan joined Thornburg in 2016.

Prior to Thornburg, Danan served as portfolio manager for the Strategic Growth Bancorp family of banks, managing various strategies for institutions and individual investors. Before that, he was a financial institution specialist with the FDIC. He is also a veteran of the U.S. Army. Danan graduated summa cum laude from the University of New Mexico’s Anderson School of Management with a BBA, concentrating in finance.

Stephen Jimenez is a client portfolio manager for Thornburg Investment Management. He focuses on Thornburg’s liquid alternative strategy and serves as a liaison between the investment team and clients.

Prior to joining Thornburg, Stephen was a salesperson at III Capital Management, a $4 billion hedge fund management company focused on rates and credit strategies. He also held various positions in the alternative asset management industry, including Coast Investment Management, a $7 billion fund of hedge funds. His roles included global product specialist and hedge fund analyst, focused on fixed income relative value strategies. Earlier in his career he was a U.S. Treasuries market maker and arbitrageur at major Wall Street firms, including Bank of America and UBS.

Stephen attended the University of Washington, where he graduated with a BA in economics. He is currently registered with FINRA with a Series 7 and 66.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Charlie Wilson is portfolio manager for Thornburg Investment Management. He joined the firm in 2012 as ­associate portfolio ­manager and was promoted to portfolio manager in 2014.

Charlie earned a BS in geology from the University of Arizona in Tucson and a PhD in geophysics from the University of Colorado in Boulder. Prior to joining Thornburg, Charlie served as co-portfolio manager for Marsico Capital Management in Denver, Colorado. He was responsible for portfolio investments across multiple strategies and geographies, with specialization in materials, energy, technology, and payments sectors.

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